• Targeting a high income and long-term growth through an actively managed portfolio, blending physical UK commercial property and Pan European real estate securities. The managers employ an active and innovative approach in order to harness the asset class’ attractions, whilst countering some of the inherent challenges associated with property investment.
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Key facts

  • Fund aim

    The fund aims to deliver a high income together with long-term capital growth.

  • Fund information
    Fund currencyGBX
    Launch date02/02/2015
    IA sectorProperty
    ISIN codeGB00BQWJ8687
    Sedol codeBQWJ868
  • Share ClassMinimum InvestmentInitial ChargeOngoing ChargeISINKiid
    J Inc 1,000 0.00%1.07%GB00BVG2S917English
    J Acc 1,000 0.00%1.07%GB00BVG2S800English
    I Inc 1,000 0.00%1.07%GB00BQWJ8794English
    I Acc 1,000 0.00%1.06%GB00BQWJ8687English
    H Inc 1,000 0.00%1.71%GB00BQWJ8570English
    H Acc 1,000 0.00%1.66%GB00BQWJ8463English
  • Key dates
    Payment Dates 31 May, 31 Aug, 30 Nov, 28 Feb
    Ex-dividend dates 1 Mar, 30 Jun, 30 Sept, 31 Dec
  • Fund manager commentary

    Pan European property shares extended their gains in July, with the equity element of the benchmark (the FTSE EPRA/NAREIT Europe ex UK Index total return in euros) rising 2.3%. This was a pleasing result after a virtually flat June. The physical portfolio produced a more steady +0.8%, which was a mix of two-thirds income and one-third capital gain. The UK equity portfolio collectively generated a positive return, with warehouse and healthcare exposure compensating for the weakness in one of our retail names, Capital & Regional (-6.8%). It is encouraging that our other retail exposures, New River Retail (+1.5%) and Supermarket Income Real Estate Investment Trust (+1.8%), were both comfortably positive. The overall result was a total return of 1.42% (Class A, Accum in sterling) for July.

    We have been concerned for some time that the lack of transactional evidence for UK shopping centres investments has led to independent valuations remaining artificially elevated. Landsec down valued its Bluewater asset in March (reported in May) but has now been joined by Intu, which announced a +33 basis point yield expansion and -2% estimated rental values, which led to a -6% asset write-down over six months. This, with an excessive balance sheet leverage, led to a -12% net asset value (NAV) decline, and CEO David Fischel stepped down. We continue to believe that the company’s uncovered dividend should be rebased in light of the structural headwinds facing the UK retail sector. The impact of company voluntary arrangements by weak tenants, as well as estate downsizing by healthy ones, is resulting in a steady downwards grind in rental values. Hammerson announced its pre-flagged strategic review with nothing new and the stock failed to respond to the news (price 510p). We were surprised that Hammerson’s asset value did not correct more given its announcement that it will be selling out of its retail warehouse portfolio. We believe the Board and management have many questions to answer given that they rejected Klepierre’s 635p offer just two months ago. Retail’s woes are not confined to the UK: Dutch real estate company Wereldhave’s valuation and rental income both continued to decline (by approximately -1%), highlighting the unprecedented pressure for secondary shopping centre landlords in markets that have been stable for so long.

    The other side of the retail ‘coin’ remains warehousing and logistics, and this reporting season reinforced the now incontestable theme of ‘sheds being the new shops’. Segro, the largest specialist in this sector and a significant UK holding for the fund, reported accelerating results with 2.3% like-for-like (LFL) rent growth, 11% earnings-per-share growth and 8.5% NAV increase over six months.

    Sweden was the standout regional performer in July, with a total return of 11.6% in Swedish krona terms. This was fuelled by the largest Swedish office developer Fabege, which reported consensus-beating results for the first half of 2018 and raised its annual investment amount to SEK2.5bn (from 1.5bn). The results showed an outstanding operational performance, with 5% LFL net rental growth (roughly 10% including capital expenditure), 29% uplift on renegotiated rents and 9% capital value growth, which led to a 15% NAV increase over six months. The fund has a broad portfolio of Swedish investments which performed, well including Klovern (+16.5%), Hemfosa (+16.4%) and Castellum (+9.3%).

    Norway’s only listed index constituent is Entra, which is focused on Oslo offices. The stock has been a solid overweight (1.6% of net assets) and performed well in July, returning 7.0% as investors focused on its development pipeline as well as the positive picture of demand (resurgent oil price) and limited supply.

    The fund had a large cash position at the end of July. This is entirely tactical. Just after month-end we acquired two further industrial assets, investing a total of £13m. Two further acquisitions are currently completing due diligence and would total a further £20m of investment, one industrial and one office. We provide full details of any acquisition at the end of the month of purchase. All these acquisitions fit our strict investment criteria and have the added advantage of increasing the average lot size of the physical portfolio.

    As at 31 July 2018

  • Past performance is not a guide to future performance. Values may fall as well as rise and investors may not get back the full amount invested. Income from investments may fluctuate. Income payments may constitute a return of capital in whole or in part. Income may be achieved by foregoing future capital growth. Changes in rates of exchange may have an adverse effect on the value, price or income of investments. Due to the restricted diversification, investments are concentrated on property market companies; performance may therefore differ in direction and degree from that of the overall stock market. The value of property-related securities is likely to reflect valuations determined by professional valuers. The value of directly held property will reflect the valuations determined by professional independent valuers. In both instances such valuations are the opinion of valuers at a particular point in time and are likely to be revised. Property and property-related assets can sometimes be illiquid. Significant or persistent redemptions may require the manager to sell properties to obtain the necessary liquid assets at a lower market value. The fund may invest in fixed interest assets; receiving the income due from such debt instruments and the return of the principal is dependent upon the provider's ability to pay. Changes in interest rates can affect the value of the fixed interest holdings. The fund may be exposed to the use of derivatives for investment purposes; derivative values rise and fall at a greater rate than equities and debt instruments, therefore the value of the fund's investments may be volatile. The fund may place cash on deposit with approved counterparties, the return of which will be dependent upon the continued solvency of the counterparty. fund charges may be applied in whole or part to capital, which may result in capital erosion.
  • Marcus Phayre-Mudge

    Marcus Phayre-Mudge

    Fund Manager

    Alban Lhonneur

    Alban Lhonneur

    Fund Manager

    George Gay

    George Gay

    Fund Manager

  • IWSIA17-LOGO-HC-Property--Real-Estate